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August 1, 2010

Facebook Credit: Zuckerberg next Treasurer of the Internet App2User

Facebook has just announced it’s plans to expand it’s Facebook currency. Called Facebook “Credit” it includes a real world component named, rather fetchingly, “App2User”, which aims to encourage merchants and loyalty programs like Qantas Frequent Flyer points and Flybuys and whatnot to use the Facebook points social media system. Social Networks and Online Communities – maybe Twitter? Foursquare? local photo forum? – will no doubt be encouraged to use this Facebook Credit currency on their external sites. Zynga and Facebook games like Farmville will HAVE to use the Credit/Coin system, and pay Facebook 30% of Credit sales. One Currency To Rule Them All.

Facebook Credit currency economy

This is pretty important. Let me explain why. But first…

Quick note on currency and Virtual Goods

CURRENCY: Money has no inherent worth – it’s all virtual. Even coins don’t actually cost $2 to make, they “represent” a collective, community value of what is worth $2. Technically money is a Medium of Exchange (virtual item easily transported), often a Unit of Account (menu of stuff you can buy, a Show of Worth) and almost never a Store of Value (gold coins actually worth something). Now take the traditional currency of notes and coins that “virtually” represent a value and translate it into modern Visa cards and bank statements and the virtual-ness is self evident. – tonnes more info on my Social Media Monetization slides.

VIRTUAL GOODS: don’t have to be virtual cows in Farmville or magic swords in World of Warcraft. They can be cds/dvds, software for your office, downloadable whitepapers and books on an iPad, ringtones, music/videos on the iTunes store, films on DVD, images like backgrounds and avatars. And if you can make sure you have minimal production costs (graphic designer to create a virtual item graphic) and then charge small amounts to members to download (no distribution costs) millions of times, you are swimming in money. Virtual or otherwise. By the way is information – legal advice, consultant strategies, phone consultation – virtual? I think that, if you can bite it, it’s real, if you can’t it’s virtual. Ewww. Stop biting your iPhone!

You can still use the normal points for real world (expensive to Merchant) items like flowers and flights but everyone would prefer it if you spent your points on pixel crap

No mention is made of offering this as a member-to-member currency, which would place Facebook with 400 million members and growing as the fastest growing economy in the world. 😛

So we use real money (which is itself virtual medium of exchange) to achieve frequent flyer points and loyalty card points (also virtual) which we then swap for Facebook Credit to buy virtual items in virtual worlds. We need a conversion table: 20 Frequent Flyer Miles gets you 100 Facebook Credits which can be exchanged for a $5 gift card or a horse in Farmville. And before you laugh and think virtual money is for geeks, when was the last time your employer delivered a cow, eggs and new sofa to your house as a salary? ^.^

Facebook Money for Social Games

For a start, social games are BIG business. 120 million people play Zynga games in Facebook (Farmville, Farmtown, Mafia Wars) and it makes Zynga $450 million in revenue in 2010 alone. And Zynga are just ONE Facebook game company. 80-odd million log into a Zynga game each month in Facebook.

Stupid puppy needs feeding all the time

Zynga won’t have any say in this – games are being told “use Facebook credits or else”. So instead of using Paypal to buy Farmville credits you will use Facebook to buy Facebook credits to be used in Farmville. Facebook becomes your bank (store) and currency exchange (transfer).

Facebook could force Zynga to adjust its math. More than 90% of the company’s revenues come from users converting real cash into proprietary virtual currency. FarmVille, for example, has Farm Coins. Say you buy a tractor for 5,000 Farm Coins, which equals about $3.30. Typically the company pays less than 10% of that to a third-party transaction handler such as PayPal and keeps the rest. (In March, PayPal said Zynga was its second-largest merchant after eBay.)

Facebook is testing a service called Facebook Credits that would offer a single virtual currency for use on many different apps. If the social network forces app makers to use Facebook Credits, as some developers expect will happen this year, Zynga would have to pay the company up to 30% of every transaction. “If Credits become pervasive, I don’t think Pincus can stop it. It’s going to hit the margin,” says Peter Relan, executive chairman of CrowdStar, one of Zynga’s many competitors. (BusinessWeek)

500 million members and growing. All using Facebook Credits for everything from games to Facebook gifts like eBirthday cards.

“Liu said today that there were around 800 million unique social gaming experiences on Facebook each month.” from Read Write Web. Or to put it another way:

While the phrasing may be different (as this isn’t the exact phrase used by Deb Liu at f8), it’s clear that Facebook wants to make users familiar with the Facebook Credits product. With more than 200 million monthly gamers on Facebook (each of which play 4 games on average each month), only 2 percent currently purchase virtual goods. By seeding users, Facebook will hopefully increase the volume of transactions going through the system over the long-run. (Facebook Application Development)

But it’s not just games is it? if you can trade your Flybuys (8 million Australians) or Everyday Rewards (3 million Australians) for Facebook stuff, that’s like those stores cards are trading with shops in the biggest shopping mall on earth, called Facebook. And I saw a guy raving about how he wants to integrate Facebook Credits (he currently uses Offerpal) with his social betting game. The mind boggles.

Facebook for Market Intelligence/ customer reward

The Visa Business Network application fosters an environment full of creativity and support. By learning best practices from other business owners in your field, you can prepare your business for a number of challenges, such as managing growth, allocating resources, and retaining satisfied clients. With all of this information, you’ll be well prepared for your business’ next step.

In addition, when you add this application you’ll receive an email with a coupon code that you can activate to receive advertising credits that can be redeemed for Facebook Ads for your business through Facebook’s online advertising system.

To add the application, please click here

Expect to see everyone from Nike (rewarding you for uploading your nutrition/exercise program) to TV Stations (rewarding you for becoming a Fan/Like of Lost or Big Brother page) jumping in. The current emphasis on rewards of credits going to Facebook Advertising implies that Facebook are going hungrily after Google’s Adsense/Adwords revenue. After all, you also get profile based targetting which Google can’t give you… but I don’t think Facebook Credit is just for Social Ads on Facebook.

Future: Facebook buys Foursquare, you get stuff

Let’s just play around for a moment. Let’s say you’ve been on Facebook a few years and every once in a while, Facebook gives you Credits for nothing at all. It’s your birthday, you uploaded a link that a group liked, your Page reached 100 members. So you’ve got 10,000 Credits just sitting there. In fact I already have 80 for doing nothing and it’s only been implemented a short time…

Now lets say that Foursquare (the mobile phone game) is bought by Facebook or integrates their karma point system with Facebook Credits. Scenario: You go to your favourite cafe and are finally made a Foursquare Mayor. Yay!

Your phone pings you – it’s Foursquare Facebook Credits – You notice that if you want, you can buy a large skim latte for 250 Facebook Credits. Just show the coupon on your phone to the nice barista behind the counter. Would you? Full Circle – Member trades Frequent Flyer points for Facebook Credits, spends Credits in the real world.

So, members use their “real world” loyalty points to buy Facebook Credits. Members use Facebook Credits to buy virtual goods on Facebook. Members earn Facebook Credits by being good Facebook citizens. Members trade Facebook Credits for real world items. If you think Zynga are screwed, spare a thought for the Australian Taxation Office.

Would you hire me, as a social media consultant on Facebook credits? I’ll add 2,000 more fans in a week if you’ll give me 100 Facebook Credits. I’ll spend them on music, whitepapers and give them to my niece for her social gaming. Wha does that do to the Digital Economy hmmm Stephen Conroy*? (* Minister for Broadband & Digital Economy in Australia) Have a look at China’s TenCentQQ – messaging service a bit like Twitter:

QQ from Tencent

The Q coin is a virtual currency used by QQ users to “purchase” QQ related items for their avatar and blog. Q coins are obtained either by purchase, one coin for one RMB, or for using the mobile phone service. Due to the popularity of QQ among young Chinese, Q coins are now accepted by gradually more and more online stores and gaming sites in exchange for “real” merchandise such as small gifts, and raised the concern of replacing (and thus “inflating”) real currency in these transactions. The People’s Bank of China, China’s central bank, says it is investigating the possibility of cracking down on Q coin, due to people using Q coins in exchange for real world goods. Tencent claims the Q coin was merely a regular commodity, and thus not a currency.

We value what we value – and sometimes we value the representation (money) as much as the goods. So Q coins simply become another “medium of exchange or show of worth”. In other words: real money.

One Coin to Rule Them All:

“‘there’s just going to be one currency that people use’ on all apps.” Mark Zuckerberg… but that’s not all is, it Mark dear? And Deb Liu 🙂

To be clear, Facebook is also looking to work with third party payment companies for Credits. Liu said that these can include anyone from mobile payment providers to game cards to bank payment systems to reward cards, and it plans to get “100 to 200″ of them as options for purchasing Credits. The company already works with Zong for mobile payments and PayPal for web payments, and accepts credit cards directly. It partnered with Peanut Labs (via RockYou) and Trialpay last week to begin testing advertising offers that can be taken in exchange for Credits, and we wouldn’t be surprised to see it work with more companies there.

…

(Deb )Liu (of Facebook) presented a few reasons why: Facebook can directly ensure the safety of the payment process, it can provide the currency at a scale where many users will have this currency than game or developer-specific ones, it can use its own brand and interface to promote the currency in ways others can’t.

From Inside Social Games – the social economy will trump capitalism perhaps? Or an uber version of capitalism? Ah well, that’s a post for another day.

Still Sceptical?

Now there are a number of bloggers around – won’t mention any names – that think money and “virtual currency” and revenue are not important in social media. Or it all gets categorized as “Second Life”… even though the world is evolving virtual entertainment in leaps and bounds. If you are one of those guys, listen up. I strongly recommend you get your head around social media currencies – soon marketing and PR and customer service will be relegated to second position in social networks when the sales people and money guys move in. When that happens, forget softly softly “listen/engage with the customer” – it’s going to get hardcore, bottom line figures. And at the centre of it will be the question: who will own the global currency markets? At the moment it looks like Facebook. Back in 2005 I was blogging about Yahoo Yen and New$ Dollar but I guess traditional giants missed the boat – it’s freshfaced Mark Zuckerberg and his 400 million strong network that will dominate. Second Life currencies, Everquest Norrath server having the same GDP as Nigeria, they are all a prelude to what’s coming. Think Industrial Revolution and you have some idea…

But according to Zuckerberg, Facebook is not doing this to generate revenue, but “for the developers.”

Believe that at your peril.

Final Notes: CIA, Government and Security

Facebook Grows DC Lobbying – Facebook’s lobbying efforts in Washington D.C. have been growing over the past year and VentureBeat reported that the company seeks to continue this growth by adding another staffer to their current mix of four employees. The article includes an interesting set of documents that show Facebook has been not only lobbying the Federal Trade Commission, senators and representatives, but also strengthening relationships with intelligence and homeland security agencies. These efforts amounted to $41,390 for the first quarter of 2010; the 2009 total was $207,878. According to VentureBeat, Facebook was the only major Internet company to go after the intelligence community, including the Office of the Director of National Intelligence (17 agencies like the CIA), the Defense Intelligence Agency. (Facebook Application Development)

Add that to:

DST Buys Into Groupon – Digital Sky Technologies, which bought a $300 million stake in Facebook in 2009, recently invested to the tune of $135 in Groupon, a group coupon buying company that uses Facebook for part of its service. Reuters reported that this money would be used to fund global expansion at Groupon.

And lastly you might want to have a think about Facebook investor Peter Thiel, PayPal investor, his relationship with Acebucks and virtual currency investors, and the connection of other investors with CIA venture capital company, In-Q-Tel.

All Hail Facebook – I for one welcome our new overlords.

(I wrote this in May, meant to edit it down. Didn’t. Might as well publish it now and do a more up to date one later – when the diagram above is finished. Presented at Web 3.0 conference).

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2017: Laurel Papworth aka SilkCharm connects with 6.8 million people through social media each month and has 11,000 online students studying social media with her. Laurel was named by Forbes Magazine in the Top 50 Social Media Influencers globally and has taught Facebook, Blogging etc at the University of Sydney for 10 years. Laurel: About and Online Courses